Remember all those dire predictions about how if the private equity industry failed to regulate itself, it would have regulation imposed upon it by external forces? They’re coming true.
Witness Andrew Cuomo’s “Public Pension Fund Reform Code of Conduct”, a set of rules that he would like to see the investment industry adopt. Chief among its strictures is a ban on the use of placement agents in raising capital from public pension funds.
The New York State attorney general unveiled his code in the announcement of a $20 million “resolution” agreed to by Carlyle related to its interaction with Henry Morris, the politically connected “placement agent” at the centre of the public pension pay-to-play scandal.
You can access the code of conduct here (it begins on p. 24).
The code, which Carlyle has agreed to adopt, bypasses any attempt to delineate proper and improper conduct on the parts of placement agents and cuts them out of the public pension fundraising market altogether. A document from Cuomo’s office states that “the use of placement agents to obtain public pension fund investments is a practice fraught with peril and prone to manipulation and abuse”. Going further, in prepared remarks to reporters last week, Cuomo said: “If Boss Tweed were alive today, he would be a placement agent.”
For those of you not steeped in New York City history, this is not a compliment. Tweed is an icon of political corruption in US history, overseeing as he did the 19th Century Democratic Party machine of New York. He was eventually convicted of theft and died in prison.
The code also prohibits fund managers from making political donations to pension officials and generally requires full disclosure of any potential conflicts, as well as annual certification with the attorney general’s office that all these ducks are in a row.
Today the comptroller who oversees New York City pension funds also endorsed Cuomo's code.
Carlyle’s agreement to the resolution may have set in motion an industry-wide move toward a code that accomplishes ends that this industry no doubt agrees with, but through means over which its participants would likely have preferred to have had more influence.